Microsoft Touts Xbox Momentum and Future

Microsoft this week revealed that it has sold 76 million Xbox 360s since the console first went on sale a bit over seven years ago, and that almost 60 percent of customer activity on the device is related to entertainment, not video games. But Microsoft’s oddly timed celebratory lap doesn’t mention the abysmal state of its own Xbox entertainment apps and the fact that its own console sales have fallen off a cliff as customers embrace casual gaming.

“Yes, we started with video games, but we have been on a journey to make Xbox the center of every household’s entertainment,” Microsoft Corporate Vice President Yusuf Mehdi said in a prepared statement ahead of an appearance at a session at the D: Dive into Media conference this week.

“We want to partner with the industry to bring entertainment into a new era,” Microsoft President Nancy Tellem added. “It’s an era when interactive entertainment becomes the greatest form of all entertainment, and we couldn’t be more excited to play a part in it.”

To this end, Microsoft is touting certain Xbox-related successes, such as the 76 million consoles sold, 24 million Kinect motion-sensor add-ons sold, 46 million active Xbox LIVE memberships, and the 57 percent of Xbox 360 usage that is related to entertainment apps, not video gaming. But these apparently big numbers obscure some painful facts that make the firm’s game and entertainment aims far less compelling than is implied.

For example, the Xbox 360 is the only digital device that requires an additional subscription service—the $60-per-year Xbox LIVE Gold—in order to access other subscription services such as Netflix, Hulu Plus, and more. Only on Xbox 360 do subscribers pay twice, on an ongoing basis.

And Microsoft’s recently launched entertainment services, Xbox Music and Xbox Video, are an absolute travesty—a tangle of barely working features that fail in the most unexpected ways. Xbox Video, for example, is available on Windows 8/Windows RT and Xbox 360, but not on Windows Phone 8, even though its predecessor worked on older Windows Phone versions (and still does). And the mess of Xbox Music features works so inconsistently across Microsoft’s platforms that I’m writing a book about it in order to sort it all out.

Focusing on the momentum bit, I suspect that "46 million" number is a better estimate of actual Xbox 360 usage than the units sold figure, since an Xbox LIVE subscription, free or paid, is pretty much required to use the console. Compare this figure with PC, tablet, or smartphone sales to understand how small that market really is. For example, Q4 2012 is widely considered the biggest disaster in PC sales in a decade, and PC makers sold 90 million units in the quarter. That’s more units than all Xbox 360s sold in over seven full years, and the average selling price of a PC is higher.

And those 46 million Xbox LIVE users pale in comparison with the number of people—235 million, as of last September—who play games on Facebook each month. Even Sony’s PlayStation Network claims 90 million users, double the number on Xbox LIVE. (And that figure is almost a year old.)

Xbox’s next big market, living room entertainment, is also Microsoft’s to lose. If any of its competition gets their act together—Apple’s Apple TV comes immediately to mind, though a coming generation of smart TVs from Samsung and others might make more sense—customers will simply access their favorite entertainment services (absolutely none of which are made by Microsoft) on other less expensive or more convenient devices.

With video game console sales nose-diving in 2012, Microsoft is planning to release a new Xbox video game console in late 2013, along with a new, much less expensive version of the Xbox 360. These devices, coupled with Microsoft’s cloud and entertainment services, will form the heart of the firm’s gaming and entertainment pushes going forward. But so far, there’s been a decidedly limited market for each.

Microsoft touts Xbox because it’s the firm’s only successful, internally developed consumer brand, at least in perception. But it’s a platform that gets shakier the more you investigate. Is Xbox really a success? Or is it all just a smokescreen?

Discuss this Article 9

Paul: While I think you are spot on questioning how successful Xbox is now (massively hemorrhaging market), I think its a bit unfair to say it wasn't. It was the #3 console and Microsoft did come to a dominate a market which at the time was ruled by two, at least at that time, savvy marketing companies. My issue with Microsoft, which you allude to, is how slow they move. Glacially, in relationship to the warp speed the market is moving.

I think the PS3 can boast bigger numbers for one reason - it's free. You don't need to pay to play online. However, I don't mind paying for Xbox Live Gold because I think in terms of performance and offerings, Microsoft is offering me a lot more than Sony is. Sony's free PSNetwork is abysmally sluggish when it comes to getting game updates or downloads of large sizes. In a high-speed internet household, I've had to wait literally a couple of hours for a game update on PSN that took less than 5 minutes on Xbox Live.

Here's hoping they get their act together and fix Xbox Video and Xbox Music. I had high hopes for both, and now I just go back to using my (much better) Zune software for music and video.

No matter how you look at it, whether it be by declining console sales or increased mobile gaming, it'll be a LONG time before mobile gaming displaces console or PC games completely, if ever. Mobile games are rarely ever good for more than one thing - killing quick time. Serious gamers will still flock to PCs and the console of their choice. I believe we still have one more generation of consoles ahead of us before any major changes happen.

Bear in mind that Sony does not provide the number of active users for PSN. Only the aggregate number of accounts. The 45 million number is ok given those are active users. Also notice they didn't include the total number of Live accounts (which would include inactive accounts). If anything, it's Sony's number of PSN memberships that is a smokescreen.

The living room is indeed Microsoft's to lose at this point, but we can only speculate what their next move will be. A move towards a console that is better adapted towards apps and more social gaming is a given. How they will balance that against "hardcore" gaming remains to be seen.

Microsoft did after all come in and disrupt the market, effectively taking the single largest market (US) from Sony. We can point out the Wii, but if there ever was a console that nose dived in the end, that was it. The Wii U appears to be flopping hard right now, and it remains to be seen if Nintendo can get that going.

I think Microsoft is in a great position to really make a splash with the next Xbox. They really do need to get all of these services improved for that to happen though. If I were a betting man, I'd wager that changes are coming to Xbox Live Gold. Looking at how many of their services are offered through subscription now, I think it's possible they will package many them together along with using Xbox Live Gold as a form of subsidizing the next console, and maybe even offer online multiplayer for free. Whether that comes to be remains to be seen, but if they do certain things right they can pull that off and still be able to get users to buy subscriptions.

Paul the one thing that confuses me you mentioned. Why do you have to pay for Xbox Live Gold to use apps like Netflix and you have to not only pay to watch a movie on Xbox Video but you also have to have an Xbox Live Gold membership? This always confused me, you'd think the gold membership would be for online gaming only and the rest would be free instead of double paying.

Microsoft has to change that if they want to be a leader in the living room. Non gamers aren't going to pay for Xbox Live Gold and for separate services that they can get for free if they buy a Roku or a TV or a DVD/Bluray player that has them built in, or even hook up your phone or tablet to use these services. You'd think Microsoft would see this and change it in the Xbox 720 wouldn't you? IF they would have done this in the beginning I think they would have made more money on services. There are plenty of people who have kids who have Xbox's that would probably rent a movie or use Netflix on their kids Xbox (most kids don't want their parents on their Xbox Live accounts) if these services weren't connected to a Gold account.

We'll see what will happen, I think there will be a change. I hope there will be a change. Especially if they're going to have an Xbox that isn't for gaming but for video and audio entertainment. We'll see though.

The answer to all of you that ask why you "have to" pay for Xbox live is simple: because you will. They would charge more if they thought that you would pay more. We call this capitalism. It's still popular in the USA to this day!

Really glad to see this article. I want Xbox to be the hub of my living room and I want it to play nice with my home network, the cloud and PC in a way my TiVo cannot. However last might I found myself watching YouTube on my TiVo in it's terrible clunky interface instead of my Xbox because I choose not to pay for a Xbox Gold subscription being that I'm not a social gamer. This is bad for Microsoft because when it comes time to buy digital media I choose my TiVo/Cable providers OnDemand service instead of Xbox. When it comes time to upgrade to a new Xbox I'm going to take a pass, unless I have a Gold membership the thing is a brick.

Get with the program MS, make it easy for me to get into your ecosystem, not hard and expensive. I'll spend plenty once I'm actually using it.

I think the only reason that Sony isn't charging for online services is that they can't...now. They started out behind, with a massively expensive console and needed something to draw users in - free online gaming. I'm sure had their online offering been as good as MS' when it was first launched they would be charging as well. They have plus now which is sort of different from XBL gold but it did make MS really examine the value of gold. To me xbl gold isn't really worth it.. and I'm hoping they take a lesson from Sony with Plus. I think MS needs to learn a new word - FREE. PS plus gives me "Free" games every month. I know people that will download dlc for games they don't own just because it's FREE. No the games you get with PS plus aren't really free but to most they seem that way. I give Sony $50 a year, they "give" me an instant game collection with different games every month(?). I go to the store and download them for 0.00 - or FREE. It's something fairly concrete that I can point to that I "get" with my subscription. XBL gold doesn't have anything like that. Yeah, there's online gaming...and I use that occasionally...but Plus gives me GAMES and BIG discounts on games that I can play online or off, even on my Vita. Yes, it's only while my subscription is current, but as a GAMER I'd rather play GAMES, the movie apps and such don't add any value to my gold subscription and rarely do they offer gold only sales/discounts. I think they're so determined to take the living room they've forgotten how they got where they are today. Hint: it wasn't Netflix.